The following principles must be kept in mind while entering into any agreement:
|➤ Ease of use|
|➤ Short and simple phrases|
Aside from the foregoing, some other provisions must be followed while entering into any Business/ Contract arrangement. They are as follows:
Stamp Papers (Stamping): All agreements must be written on stamp paper. The stamp duty levied on various sorts of agreements varies by state.
Attestation or Witnesses: Under Indian law, some agreements must be authenticated by two witnesses.
Notarization: In India, notarization of a contract refers to authentication by a Notary Public.
Agreement Registration: Although registration of agreements is not required by law, it is recommended in order to provide the agreement legal legitimacy and enforceability in a court of law.
Apostille by Indian Embassy: All foreign agreements signed in countries other than India must be legalized through the apostille procedure, in which the agreement is attested and validated by the Indian Embassy/consulate in that nation.
Some of the most important concerns with Indian contracts are discussed here. It should be noted that some of the problems raised in this legal context are equally relevant to the negotiation of business agreements in general. These notes deal with contract formulation and signing under Indian law, as well as business procedures in the nation.
The date is generally at the beginning of the document, although it is usually the final item to be finished because it is usually dated when all parties have signed it. However, work under an agreement may begin before – or maybe some time after – the date specified in the agreement.
This can be addressed in the contract’s text. For example, there is a stated “Commencement Day” in our Agency Agreement (Doc IN101) that indicates the date on which execution of the Agreement begins.
Please include complete and accurate information below. The specifics will differ depending on whether the contracting party is a business, partnership, individual, or some other organization, and whether the party is situated in India or another nation.
One or both parties may be required to comply with exchange control regulations prior to engaging into a contract. Such compliance should be subjected to appropriate audits.
According to Indian income tax legislation, tax can be withheld on any money paid to a foreign person. While negotiating the Agreement, provisions of the Double Taxation Avoidance Treaty should be considered.
When there is an Indian counterparty, it is best to make Automatic Early Termination applicable. In other words, the contract should have a clause that allows a party to end it under particular conditions. However, caution should be exercised in drafting the events that constitute a bankruptcy event because it is quite common for a creditor (particularly in India) to issue a bankruptcy notice and, at times, institute proceedings more as a pressure tactic on the debtor than in the hope of succeeding in the proceedings.
In India, like in the United Kingdom, the term “bankruptcy” refers solely to individual instances. Companies are either “wrapped up” or “liquidated.” In the case of claims against a corporation in liquidation, Indian courts would regard a foreign counter-naked party’s exposures as an unsecured obligation, and any such claim would be subordinated to secured creditors and other statutory dues. As a result, it is prudent to include protections that give leading signs, allowing a foreign counterparty to terminate before a liquidation order is issued or a liquidator is appointed.
Some papers must be duly stamped in order to be enforced. As a result, the foreign counterparty should make certain that it is properly stamped in compliance with Indian legislation.
It is customary for each contracting party to keep one original. Thus, if there are two parties, two original copies should be signed, with one kept by each. A contract is only valid if the requisite requirements to constitute a legally enforceable agreement between the parties are followed. If in doubt, get legal counsel from a lawyer in the relevant jurisdiction.
The primary reason for having a signature witnessed by a third party is for evidentiary purposes. The witness would be able to affirm that the signature on the agreement is truly the signature of the named party.
Although it is generally recommended to have a contract proved by witnesses in India, a contract may be effective without any signatures being witnessed. In certain countries, the contract must be signed in front of a notary public in order to be legally binding. Because various countries have different regulations, always double-check the position before the contract expires.
When a signature is witnessed, the witness should write their name in block capitals and provide their home address in addition to signing.
Even if foreign law is adopted as the governing law, choosing litigation as the mechanism of conflict resolution is not recommended. Most orders issued in other jurisdictions (for example, New York) are not recognized in India. Arbitration would be a favored method of conflict resolution, particularly because international arbitral rulings are recognized and enforced in India.
The Indian Judicial Mechanism’s Dispute Settlement Mechanism consists of resolution of conflicts through courts and statutory tribunals; resolution of issues through conciliation or arbitration as alternatives to courts and tribunals.
In India, the arbitration structure is predicated on maximal party liberty with minimal court interference. Arbitration is widely accepted in India as a quick and cost-effective method of resolving disputes.
The majority of arbitral services for the resolution of commercial or commercial disputes of international nature are provided for the Federation of Indian Chambers of Commerce and Industry (FICCI) by the FACT (FICCI Arbitration and Conciliation Tribunal), which has its headquarters in New Delhi and Arbitration Courts in major cities across the country. If the parties want to resolve their disputes in a Court of Arbitration outside of India, the London Court of International Arbitration or the Singapore International Arbitration Center are typically employed.
Based on the key issues raised above, it is clear that when it comes to drafting and signing international contracts in India, commercial practices are fairly similar to those in Western countries (particularly the United Kingdom) and are based on the basic principles of Common Law, albeit with some significant differences; it should also be noted that when specific issues or questions between the parties arise, legal advice should be sought.
In addition to sureties, it is also possible to protect oneself against unpaid invoices by certain specific clauses. The penalty clause specifies the rate of damages and interest due by the debtor in case of delay or failure to meet his obligation. Framed by the Indian civil and commercial code, a judge can control the clause: it can be judged derisory or excessive. How to properly evaluate the amount of the penalty? To avoid the risk of having the clause revised, it is more than advisable to consult a lawyer.
For a seller to a buyer, the retention of title clause allows the seller to retain full ownership of the property until the buyer has paid in full. It is a way to ensure that the goods are delivered in full. The goods will not become the property of the buyer until the full price has been paid. To be valid, however, this clause must comply with certain formalities, namely acceptance by both parties of the contract, its establishment before the delivery of the goods. The immobilization allowance is a clause in a unilateral promise to sell. The seller of reasonable reserves this property to the buyer without the letter committing to purchase it.
It is then possible, for this reserve, to ask for an indemnity to compensate the seller if the buyer withdraws. In order to fully understand the clauses applicable to your contract and which will best protect you, do not hesitate to seek the assistance of a contract law professional.
In addition to the prevention of unpaid bills, some clauses allow to anticipate the dispute in a more general way by focusing on the dispute as such:
|➤ The jurisdiction clause specifies the jurisdiction that will be competent in case of a dispute. It allows to prevent the judge's decisions by limiting the scope of his control|
|➤ The termination clause specifies that in case of non-performance of the obligation by one of the parties, the contract is cancelled without the intervention of a judge. This clause is not valid for all contracts|
Poorly drafted, these clauses are generally impractical: to ensure that disputes are correctly anticipated, a legal professional will find the most appropriate clause for each business contracts.